TD Currently have an $18.00 target. GLTA
Q1/24 FIRST LOOK: +5% AFFO GROWTH WITH A SIZEABLE REDUCTION IN DEBT/EBITDA
THE TD COWEN INSIGHT
FCR's Q1 results reveal continued strength in well-located grocery-anchored shopping centres, with FFO ex-items largely meeting consensus, and +5% y/y AFFO growth expected to lead all peers. Occupancy held up unusually well for a Q1, leasing spreads remain strong (albeit slightly below the H2/2023 trend), and ND/EBITDA fell nicely. At 73% P/NAV (close to peer group low), we reiterate our Buy.
Impact: NEUTRAL
FCR delivered solid Q1 results (see page 2 exhibits) with reported OFFO beating nicely on contribution from two unusual/discrete items (excluding these, OFFO/unit was still +5% y/ y and largely in-line with consensus). AFFO/unit (our calc.) was also +5% y/y (the highest growth we're expecting in Q1 for all retail REITs) but missed our forecast due to higher G&A, interest expense, and SLR accrual. The favourable unusual items (totaling $0.07/unit) were a rent settlement from Nordstrom Rack and profit from assigning a purchase option on a Montreal development parcel.
Operations continued to demonstrate Canada's tight retail leasing market — particularly for grocery-anchored centres with high population density.
Adjusted SPNOI growth was 2.3% (7.8% incl. a $5.5mm settlement from Nordstrom Rack) but would have been +3.7% excluding Nordstrom Rack's closure at One Bloor East. (Replacement tenants' rents are much higher, which bodes well for SPNOI growth later in H2/24 and 2025.)
Renewal leasing rent uplifts averaged 11% (13.5% including full-term average rents), about 2% less than the past 3 quarters (this data rarely trends in a straight line), but still showing a solid upward trajectory since 2021.
Occupancy was steady q/q, which is a good result seasonally for Q1. Tailwinds this quarter included lease-up of the redeveloped former Walmart space at Deer Valley Market Place in Calgary (substantially complete including a conditional lease), and office space in Griffintown (Montreal).
Balance Sheet
FCR completed $147mm previously announced dispositions including Yonge-Davis Centre, 1071 King St. W. (dev't site, 41.7% int.), and the 68-suite Circa Residences. With $149mm of assets held-for-sale (<2% yield), FCR appears to be making further progress.
Net debt/EBITDA of 9.3x (-0.6x q/q) is tracking well against management's low-9x year- end 2024 target (aided by the rolling off of activism costs, and the two unusual items in Q1). Liquidity as of April 30, 2024 stood at ~$1bln up from ~$0.8bln in Q4/23.
Conference call at 2:00 PM ET today (416-406-0743, passcode: 2094812, webcast link).